Modern Dental Group (HKG:3600) Will Pay A Larger Dividend Than Last Year At HK$0.09

Modern Dental Group Limited (HKG:3600) will increase its dividend from last year's comparable payment on the 28th of June to HK$0.09. This takes the dividend yield to 3.7%, which shareholders will be pleased with.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Modern Dental Group's stock price has increased by 33% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

See our latest analysis for Modern Dental Group

Modern Dental Group's Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. However, Modern Dental Group's earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Over the next year, EPS is forecast to expand by 50.7%. Assuming the dividend continues along recent trends, we think the payout ratio could be 28% by next year, which is in a pretty sustainable range.

Modern Dental Group's Dividend Has Lacked Consistency

Looking back, Modern Dental Group's dividend hasn't been particularly consistent. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The annual payment during the last 8 years was HK$0.042 in 2016, and the most recent fiscal year payment was HK$0.18. This means that it has been growing its distributions at 20% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. It's encouraging to see that Modern Dental Group has been growing its earnings per share at 38% a year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

Modern Dental Group Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Modern Dental Group is a strong income stock thanks to its track record and growing earnings. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All of these factors considered, we think this has solid potential as a dividend stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Modern Dental Group that investors should know about before committing capital to this stock. Is Modern Dental Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.